Californians now are charged sales tax on Internet purchases

SAN FRANCISCO — California residents noticed something different at the checkout on Amazon when buying books, toys or electronics starting Saturday: They were charged sales tax.

The Internet’s status as a tax-free haven is over this weekend due to a state law Gov. Jerry Brown signed last year that requires state residents to pay sales taxes when ordering goods or services over the Internet.

“Better late than never,” said Hut Landon, executive director of the Northern California Independent Booksellers Association, which has fought for more than 10 years for California to pass an online sales tax bill to level the playing field between online and storefront merchants.

Landon is going to mark the occasion by buying a book on Amazon and turning the receipt into a poster to display at an upcoming trade show.

Resistance to online sales tax collection has been great nationwide, as the Internet has come to be regarded as a tax-free zone by shoppers and Congress has tried to keep it that way. But tight state budgets and a struggling economy have raised the stakes and forced the issue so that even Washington is trying to grapple with a legislative fix that can be deployed on a national level.

For the Golden State, which has faced budget deficits for several years, there is hard cash to look forward to — as much as $300 million annually collected by as many as 400 retailers.

Yet Brown’s two predecessors stopped a state online sales tax bill from becoming law, and online retailers fought hard against collecting sales taxes before the biggest e-commerce company, Amazon, cut a deal with the state last year.

The lack of hoopla over the law’s enactment Saturday — there are no parades, speeches or ribbon cuttings — may be a recognition that the Internet as a market has become a permanent part of the economy.

And it’s a sign that state tax systems, many created in the 1920s and 1930s, are finding ways to tax 21st century economic activity.

“This is a policy issue that has been considered for a very long time,” said Betty Yee, a member of the California Board of Equalization. “Given the increased prominence of e-commerce, we think this is a major accomplishment.”

In recent weeks, there have been reports of people hoarding goods online ahead of Saturday’s change in the hopes of avoiding taxes. But state tax officials have pointed out that consumers have always been legally obligated to remit and pay the tax, known as a use tax, on their own. Few do, which is why states have turned to online retailers to help collect.

California’s new tax collectors are out-of-state retailers with more than $1 million in sales to the state and more than $10,000 in sales referred by an affiliate operating in California. Affiliates are generally blogs or websites that have advertisements or links, or coupon sites that drive traffic to merchants.

Overstock, which has more than $1 million in sales annually to the state, canceled its relationship with more than 100 California-based affiliates, “so we would not be caught in an unconstitutional tax net,” said the firm’s president, Jonathan Johnson.

It is unclear how online sales tax collection in California, and in other states, affects efforts in Congress, where leaders have been pushing bills that would create nationwide rules of the road.

The Marketplace Fairness Act, a bill by Sens. Mike Enzi, R-Wyo.; Lamar Alexander, R-Tenn.; and Dick Durbin, D-Ill., would give states the power to require online retailers to collect sales tax. Another bill, the Marketplace Equity Act, is co-authored by Reps. Steve Womack, R-Ark., and Jackie Speier, D-Calif., and would do roughly the same as the Senate version. Over the summer, the House and Senate held hearings that touched on the bills.

The senators have pursued ways to attach their bill to other legislation.

“I expect that after the recess, they are going to continue to agitate,” said David French of the National Retail Federation.

Some argue that the pressure is off Congress to act with major states such as California, Texas, Pennsylvania and others requiring online retailers to collect.

Others say that as more people get used to paying taxes for their online purchases, it will become easier for congressional leaders to argue they are not creating any new taxes.

“This is a big development, both for California and nationally,” said Michael Mazerov, a senior fellow with the Center on Budget and Policy Priorities. “I see this activity as elevating the issue and making members of Congress more aware that there is a problem out there and is pushing it along.”

California is not the first state where Amazon collects. It also collects tax in Washington state, North Dakota, Kansas, Texas, Kentucky, New York and, as of this month, Pennsylvania. Nevada, Indiana and New Jersey involve agreements Amazon made directly with the states. Amazon collects taxes as well in Virginia, Tennessee and South Carolina, which are a result of legislative action.

In California, the deal hammered out to placate Amazon involved creating two distribution centers that will increase the retailer’s ability to deliver faster to state residents.

Some online purchases will not require consumers to pay sales tax, such as an e-book, which is not a tangible, taxable item. And people who buy products online and have them shipped to a state without sales tax will not have to pay.

Also, online retailers who warehouse their products at fulfillment centers maintained by Amazon and other firms may not have to collect the tax if they do not meet certain criteria. But their customers will likely be obligated to remit the tax on their personal income tax form.

“Last fall, California passed a win-win law that has allowed us to expand our investment in the state,” said Scott Stanzel, an Amazon spokesman. “The sales tax issue must ultimately be resolved at the federal level. That’s why Amazon strongly supports enactment of the Marketplace Fairness Act. We are working with Gov. Brown and other governors and retailers and members of Congress to get this bipartisan legislation passed.”

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Ever notice how federal legislation and implementation leaves the states holding the bag? And, the feds add to our costs by not enforcing federal laws such as border security. Taxes are seldom fun but the states need the revenue. Those who are buying things, internet or not, can pay the bit more and cover the sales tax.